ECONOMICSUnit 2

The way a country manages its money and resources to produce, buy, and sell goods and services

Command Economy

• Definition: prices are controlled by the government

– The government controls the supply of a product (how much is made and how much it costs)

– Ex: the Soviet Union and Communist countries• BRAINSTORM: why might command

economies fail?

Market Economy

• Definition: prices and goods are controlled by the Supply and Demand - Companies decide how much of a product (iphone) to

make based on how many people want it (aka demand)

- Companies also set the prices for the products they produce

- Ex: many countries work toward this economy- BRAINSTORM: why might a market economy be a

good thing?

Mixed Economy

• Definition: both the government and companies work together – They decide prices – They both decide what products to produce based

on demand• Example: The United States, Great Britain, etc. • Brainstorm: Is this economic system always

successful?

The Law of Supply and Demand

• Definition: the understanding that the supply of an item effects the demand.

- If the supply is LARGE then the demand will be small. - If the supply is small then the demand will be LARGE

Examples:

1. Air Jordan’s are being sold for 100 dollars for a pair of shoes. They are very popular and the store is always selling out.

- Supply: up or down? Demand up or down?• What should the producer do to the price? Raise or

lower2. The Iphone 5 is replaced by a newer, better version, the

Iphone 5BILLION. Apple suddenly can’t sell any Iphone 5’s. Supply is: up or down? Demand is: up or down?

• What should Apple do to the price to sell more?

• 3. Write your own example showing supply and demand.

-Solve your example

• https://americanheritage.byu.edu/pages/gamesandactivities/supply-and-demand-interactive-chart.aspx

• http://www.youtube.com/watch?v=Ng3XHPdexNM

Circular Flow Notes

• Households:– Provide businesses with labor and pay for goods and

services– Provide government with labor and taxes

• Businesses: (producers)– Pay households income and with goods and services– Pay governments taxes and goods and services

• Governments:– gives businesses payment for goods and services – provides households with income and goods and services

Types of taxation

• Progressive Tax: people who make more money are taxed more

• Regressive Tax: people who make less are taxed more

• Proportional Tax: people pay the same no matter how much they make